CAI-NJ Sept.2017(1)

S E P T E M B E R , 2 0 1 7

Timothy P. Duggan is Shareholder and Chair of Stark & Stark’s Real Estate Tax Appeal and Condemnation/Eminent Domain Groups. He prosecutes real

estate tax appeals for banks, national builders, shopping centers, and commercial and retail property owners. Mr. Duggan represents individuals and

businesses in negotiating and challenging eminent domain proceedings, and represents certain public entities in road widening projects.

Mr. Duggan is also Chair of Stark & Stark’s Bankruptcy & Creditors’ Rights Group and concentrates his practice in the representation of national and community banks,

agricultural lenders, franchisors, equipment leasing companies, shopping centers, and trade creditors in commercial litigation and bankruptcy cases. Mr. Duggan has

substantial experience in creditor-rights litigation, including commercial foreclosures, receiverships, UCC Article 9 sales, and complex Chapter 11 cases.

Mr. Duggan is a frequent speaker and author on topics related to bankruptcy, eminent domain and tax appeal matters. He served as Co-Chair of CLE

International’s seminar on Eminent Domain in 2005, 2009, and 2014, and lectures nationally for CLE International’s Eminent Domain conferences in

Orlando, Florida, Texas, and California.

Courtesy CAI-NJ.

ommunity associations are creatures of contract

and legislation, with the second source being

the one that sometimes creates issues in the col-

lection process. This article will make a suggestion for two

legislative changes to help improve the position of community

associations when dealing with distressed property owners in

New Jersey.

Redemption of Tax Sale Certificates.

Most associations understand unpaid real estate taxes are a first

priority lien, superior to any mortgage or community association lien

(even the 6 month property under N.J.S.A. 46:8B-21(a)-(b)). However,

a problem can arise when a property owner is delinquent in paying

real estate taxes and the municipality sells the taxes to a third party who

subsequently starts an

in rem

tax foreclosure. The tax sale certificate is in first

position and can foreclose the rights of subsequent mortgagees and lienholders,

including a community association who holds a recorded lien for unpaid assess-

ments and fees. Assume a unit is worth $250,000, with unpaid real estate taxes

of $20,000, a mortgage of $90,000, and a lien to a community association of

$15,000. Can the community association payoff the real estate taxes to stop the in

rem tax foreclosure and start its own foreclosure to preserve the equity necessary to

satisfy its lien? At the present time, the answer is no.

The problem lies in the 1994 amendment to the tax sale law, specifically

N.J.S.A. 54:5-54, which lists who has the right to redeem (payoff) the tax sale cer-

MAINTAINING THE

COLLECTION

TOOLBOX

By Timothy P. Duggan, Esq.,

Stark & Stark

"The problem

lies in the 1994

amendment to

the tax sale

law..."